Sarah Miller informs you that the
National School Lunch Program, or NSLP, (CFDA No. 10.555) has been identified
as being major for the Sagebrush City audit (assume that Requirement 4 of this
case is independent of Requirement 2). The Sagebrush City School District
operates the National School Lunch Program for Sagebrush City. Thirty-seven
elementary, middle and high schools offer the program to eligible students. At
the beginning of every school year, each family with children enrolled in the
school system is contacted by the district administration to determine
eligibility in the NSLP. The Sagebrush City School Board maintains application
records of each family as support for the program. A staff of nine people
administers the lunch program, and the director is a licensed nutritionist.
Over 5,000 students receive free or reduced lunches under the program each
year. Separate accounting records are maintained for the school lunch program.
All lunchroom sales, sales of meal tickets, and reimbursements from the state
for meals provided to needy children are deposited into the school lunch
program fund. Meal service expenditures such as food purchases and workers’
wages are paid out of the fund.
Part A
Describe the purpose of the NSLP grant
for inclusion in the Sagebrush City audit working papers. You may need to go to
the CFDA or actual U.S. Code sections to learn more about the program. Address
why Congress enacted the program, what citizens or groups benefit from the
program, and what social objectives the grant promotes.
Part B
Describe each of the compliance features
that applies to the NSLP grant for the working papers and indicate whether the
feature would apply to the city serving as a subrecipient to the state (that
is, the state may have to match funding but the city would not). For each
feature, describe how it relates to the grant specifically for a city. Do not
provide generalized descriptions that could apply to any program. If a feature
does not apply to Sagebrush City, explain why it would not apply.
Part C
HR&Y conducted compliance testing of
Sagebrush City’s lunch program by sampling applications for participant
eligibility (i.e., to ensure that those receiving free lunches meet federal
guidelines). The auditors also tested to determine that the school food
accounting records were properly maintained, that federal monies were properly
deposited and recorded into the food service account, and that transfers out
(e.g., monies spent food purchases) were proper.
During its testing, HR&Y discovered
that the number of students who qualified for a free or reduced lunch was
materially overstated; in addition, records of the number of lunches served
were also overstated to reconcile with the number of students that qualify.
When the audit manager inquired about the findings, she learned that director
of the lunch program was concerned that students in the district simply did not
get enough to eat at home despite the free lunches provided by the school. A
plan was devised to overstate the number of students who qualify for a free or
reduced lunch so that the excess funding (subsequently used for food purchases)
created by the overstatement would be distributed to students for take-home
dinners and food on the weekends. Further investigation into the school lunch
program supported the director’s assertion, and excess food was in fact being
distributed to impoverished students. As the director explained to the audit
manager, “We had to do something. It’s not the fault of these kids that they
come from the ‘wrong side of the tracks.’ Good nutrition is essential to
learning. If a kid is hungry, how can he concentrate in school and make good
grades? It’s a shame when this happens so we have simply helped out these kids.
You will see that none of us personally benefitted from this – it is all for
the kids.
How would you handle this scenario? Is
this a case of fraud, waste, or abuse? Why or why not? Would your answer differ
if the overstatement was not material? Would your answer differ if the lunch
program director personally benefitted from the overstatement?
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